Monday Market Minute | Mar 28, 2022
The Canadian bond market posts its worst quarterly performance in decades. Private credit emerges as the alternative fixed-income allocation.
What Moved
Canadian government bonds were on track for their worst quarterly performance since at least the 1990s. The FTSE Canada Universe Bond Index was down over 7% year-to-date, a devastating loss for an asset class investors held for stability. The Canada 2-year/10-year yield curve briefly inverted — historically a recession signal — as short-term rates repriced aggressively for the BoC's hiking path while long-term yields reflected growing recession risk.
Why It Matters
The bond rout accelerated institutional and HNW investor migration toward private credit. Unlike public bonds, floating-rate private loans benefited from rising rates rather than suffering from them. The yield premium over government bonds had widened to levels that attracted capital from traditional fixed-income allocations. For private markets investors already positioned in floating-rate vehicles, Q1 demonstrated exactly the structural advantage they had been promised.
Signal to Watch
Public pension fund asset allocation disclosures — a meaningful shift from public bonds to private credit would signal a structural reallocation, not just a tactical trade.